Reviving Consumer Interest
The Union Interim Budget 2019-20 has taken a detour from the normally practice of confining to "Vote on Account" (providing for the government expenses till the new government assumes charge), to make its intentions clear - attractive sops for various sections of population, farmers and industry, before the upcoming general elections. Though it can be considered a directional budget for the whole year with a clear populist streak, it has given something for every section of the population and industry to cheer about.
Most of the economists and analysts Indian Cement Review had the opportunity to study have said that the real estate sector was the biggest beneficiary among all the corporate sectors in the interim budget. Even the sops given to individuals increasing their disposable income will lead to demand for affordable housing, which will result in pent up demand for cement.
In its post-budget analysis, CARE Ratings said though the budget is positive for real estate, it has neutral rating for impact on cement sector. "We expect the current consumption growth to continue for the cement sector and the capacity utilization to sustain in FY19 & 20," says Madan Sabnavis, Chief Economist, CARE Ratings.
Real estate in spotlight
It was raining incentives for the real estate segment, which is expected to have a positive rub off on cement demand. They have come in the form of increased disposable income with people, capital gains relaxations on sale of property, tax exemption for owning second house, and extension of timeframe for benefits available under the Affordable Housing scheme till March 2020. All these incentives are expected to push demand and supply side factors in the beleaguered real estate sector, says Shishir Baijal, Chairman & Managing Director, Knight Frank India.
"For the demand side, the budget has ensured better liquidity and lower tax burdens on the purchase of homes. The benefit of rollover of capital gains has been increased from one house to two houses, up to Rs 2 crore (once in lifetime), is a tremendous step by the government that will boost sales in both primary and secondary markets," adds Baijal.
Stating that both real estate and cement segments were winners from the budget proposals, Vaibhav Agarwal, Vice President, Institutional Equity Research, PhillipCapital (India) says that all cement players, especially players who remain more focused on building brands and increase their trade segment sales, will be the winners, while in the real estate segment those who are focused on affordable housing and those who have a high inventory overhang will benefit. Emphasis on increasing income in the hands of rural households and reviving the real-estate sector augurs well for the sectors though the momentum may not be visible immediately, Agarwal added.
Infrastructure spend is expected to continue in the same pace in the next few quarters, if the projects announced in the budget are executed in the same spirit.
"Execution in infrastructure has been splendid. The revised capital outlay (budgetary allocation + internal and extra budgetary resources) for infrastructure for this fiscal is 11% higher vs the budget estimate, with civil aviation and power seeing the highest achievement ratios. A note of caution is, however, warranted since actual expenditure this fiscal fell short by 10 per cent compared with the revised estimate then presented," says Amish Mehta, COO, CRISIL Ltd.
The interim budget has also increased allocations to the Ministry of Railways by 21.1 per cent this year. This, adding to 11.8 per cent rise in allocations for the Ministry of Housing and Urban Affairs, are kindling hopes of increased demand for steel during the next couple of years. "Increased allocation towards these ministries implies expansion in railway infrastructure and rise in development of residential and non-residential projects. This is expected to result in higher demand of steel (especially long steel products) during the year," says Sabnavis.
Samir Lambay, Co-Founder & CEO, FreightCrate Technologies, says the budget initiatives like duty free inputs of capital goods will improve the global price competitiveness of Indian companies. "The initiative to allow duty free inputs of capital goods for manufacturing sector and simplified customs approvals will increase the global price competitiveness of our manufacturing companies and consequently boost exports."
Moreover, the improvement in RFID technologies if implemented properly will reduce indirect logistics costs, which as per industry bodies have been historically as much as 38 per cent of logistics costs for Indian companies, adds Lambay.
The first three years of the Modi government saw prudence in fiscal policy, encouraged by low oil prices. Strains appeared in 2018 as the economy slowed, tax receipts suffered, revenue expenditure overshot, and oil subsidy bill soared. Consequently, fiscal deficit slipped 20 basis points to 3.3 per cent of GDP despite a cut in capex. Now the need to address farm distress and support to middle class have stretched that further.
"For fiscal 2020, divestments will need to be front-loaded to achieve the ambitious target of Rs 90,000 crore and tax collections aggressively pursued. This will be important to keep government bond yields in check," says Dharmakirti Joshi, Chief Economist, CRISIL Ltd.
Richard Heald, CEO, UK India Business Council (UKIBC), says that the Interim Budget, with its emphasis on increasing the disposable incomes of the urban middle class and the hundreds of millions in rural India, will drive consumption and therefore economic activity and that business will welcome this. However, he has wants to see "the continued fiscal discipline and low inflation, which will give confidence to the markets and the wider investor community in the long-term sustainability of India's economic growth."
- B.S. SRINIVASALU REDDY